A Review of Hedge Fund Activism: Impact on Shareholders vs. Stakeholders

This chapter reviews the growing empirical literature on shareholder activism by hedge funds, summarizing the sources and nature of the activist data and examining the evidence on target firm outcomes. Target firms do not exist in a vacuum, however; they have industry competitors, suppliers, customers, debtholders, and employees. Hedge fund activists often demand a reformulation of the target firm’s product market strategy to enhance its ability to earn inframarginal profits. This positive strategic effect may be especially significant for target firms that are economically distressed and facing predatory moves from deep-pocketed rival firms to induce exit. The putative significant effects of hedge fund activism on targets should generate spillover effects on their stakeholders. The chapter considers these spillover effects in a number of well-defined categories: industry rivals, customers, suppliers, debtholders, and employees.

Who’s Hiding in the Shadows? Organized Crime and Informal Entrepreneurship in 39 Economies

Informal entrepreneurship represents a common mode of business formation globally and entails starting and operating a business without registering it with legal authorities. Despite the size of the informal sector in many countries, the motivations for entrepreneurs to operate nonregistered ventures are not well understood. Although formal institutions play an important role, we argue that the decision to operate a nonregistered new venture is influenced by a pervasive informal institution around the world: the practice of extortion payments to organized crime. Because criminal organizations foster the development of norms and beliefs cementing extortion payments as an institution, we posit that entrepreneurs will use nonregistration as a buffer to avoid extortion costs preemptively. We further explicate that this choice is contingent upon founders’ access to resources and ventures’ product-market strategy, which shape visibility to organized crime and the ability to resist extortion and, thus, alter the need for nonregistration as a buffer against institutionalized extortion. Our analysis of over 8,000 new ventures operating in 39 economies largely supports these arguments. This study identifies a novel causal mechanism in the nomological network of informal entrepreneurship, namely, the prevalence of organized crime, and informs a multilevel theory of how entrepreneurs choose the type of organizational form for their ventures. Finally, it illuminates the importance of shadow institutions—illegal and not widely accepted practices—which may operate as unique but often overlooked types of institutions that shape entrepreneurial and organizational decisions.

Three essays on agglomeration, strategic orientation, and organizational form

This dissertation consists of three essays, trying to fill a gap in the literature by exploring the interaction of agglomeration, ownership structure, and strategic orientation. Much research has been focused on each perspective of issues, but little work has been done on the outcomes from the interaction. The first essay focuses on how the effect of franchising influences the performance of hotel segments across all identifiable hotel chain locations in the United States. This essay analyzes the effect of franchising in the aggregate, controlling for brand quality segments, or service levels, as well as each individual quality tier. In addition, this essay examines the effect of franchising both with and without controls for the endogeneity of the franchise treatment decision. First, the findings indicate that franchised-ownership is associated with higher performance outcomes among hotels both with and without controlling the endogenous selection. Second, the results imply that the effects of franchising and multi-unit franchising have differential benefits based on the product quality attributes of the establishments, and suggest that previous studies examining franchising way have overlooked these differences. The second essay presents the joint choices of geographic location and product positioning in the Texas lodging industry. The literature on the two-dimension Hotelling model concludes that firms choose to maximally differentiate on the dominant characteristic and minimally differentiate on the dominated characteristic. I argue that, assuming the geographic location is the dominant characteristic and the product positioning is the dominated characteristic, the model implies that multi-unit owners will structure their portfolios of establishments to be geographically differentiated while choosing less differentiated brands. Alternatively, I argue that, if the geographic location is the dominated characteristic and the product positioning is the dominant characteristic, the model implies that multi-unit owners will locate their establishments near one another in a geographic space while choosing highly differentiated brands. The empirical findings indicate a max-min (min-max) equilibrium, which provides insights into the strategic motivations of multi-unit operators and the relative dominance of place versus market position in those decisions. The third essay analyzes how product market strategy and ownership structure influence the evolution of the cluster. Using the data from the Texas Comptroller of Public Accounts from 2010 to 2016, this study focuses on how the joint effects of product market strategy and ownership structure shape the lodging industry dynamics and eventually the spatial distribution of hotels. The literature on agglomeration claims that the agglomeration effect is heterogeneous among hotels and this effect is based on product heterogeneity between entrants and incumbents nearby. In addition, the choice of the ownership structure of entrants might substantially change the competitive environment of the market. This research proposes that multi-unit owners who operate a bundle of product portfolios can obtain more benefits but neutralize more threats from agglomeration. The results show that the multi-unit owner will establish a new high-end hotel in the market characterized by high counts of low end hotels if one of the incumbents belongs to the multi-unit owner. Moreover, the findings also show that multi-unit owners who operate multiple cross-tier/same-chain hotels will neutralize the negative externality from agglomeration. The results imply that the owner of high-end hotels may find it beneficial to control nearby incumbents.

Diskit Khartsan Ltd. in 2013: Hatching a Solution

Tel Aviv–based Diskit Khartsan Ltd. sold sprays, traps, and netting to combat Blatta lateralis, the Israeli flying cockroach. The insect, slightly over one inch (2.54 cm) long and capable of flying short distances, was noisy, unsightly, and posed a risk of food contamination. Every heat wave brought more infestations, and consumers across the Mediterranean armed themselves with Diskit's HLH™ brand products.HLH products generated nearly two-thirds of Diskit's annual revenues. During periods of low demand, local retailers resisted devoting significant shelf space to the bulky products, which meant that during periods of high demand stockouts occurred frequently and Diskit lost sales. To address this problem, the company had implemented a trust receipts program that raised prices for retailers by 3 percent but allowed them to take Diskit products onto their balance sheets without payment until the products were sold.After analyzing and discussing the case, students should be able to: • Understand the relationship between a firm's credit policy and its product market strategy • Explain the effect of growth on firms' strategy when product market strategy is capital-intensive • Understand how exogenous change in the market's structure affects firms' product market strategy and, consequently, its inventory and credit policie